US medal-winning athletes at the Olympics have to pay tax on their prize money  something which is proving controversial in the US. But why are athletes from the US taxed when others are not? The US is right up there in the medals table, and has produced some of the finest displays in the Olympics so far. But not everyone is happy to hear that their Olympic medal-winning athletes are being taxed on their medal prize money. Athletes are effectively being punished for their success, argues Florida Senator Marco Rubio, a Republican, who introduced a bill earlier this week that would eliminate tax on Olympic medals and prize money. This, he said, is an example of the madness of the US tax system, which he called a complicated and burdensome mess.

Its important to understand, though, that this isnt a feel-good effort to create a special tax break. Instead, Senator Rubio is seeking to take a small step in the direction of better tax policy.

More specifically, he wants to move away from the current system of worldwide taxation and instead shift to territorial taxation, which is simply the common-sense notion of sovereignty applied to taxation. If income is earned inside a nations borders, that nation gets to decided how and when it is taxed.

In other words, if U.S. athletes earn income competing in the United Kingdom, its a matter for inland revenue, not the IRS.

Incidentally, both the flat tax and national sales tax are based on territorial taxation, and most other countries actually are ahead of the United States and use this approach. The BBC report has further details.

The Olympic example highlights what they regard as the underlying problem of the US so-called worldwide tax model. Under this system, earnings made by a US citizen abroad are liable for both local tax and US tax. Most countries in the world have a territorial system of tax and apply that tax just once  in the country where it is earned. With the Olympics taking place in London, the UK would, in theory, be entitled to claim tax on prize money paid to visiting athletes. But, as is standard practice for many international sporting events, it put in place a number of tax exemptions for competitors in the Olympics  including on any prize money. That means that only athletes from countries with a worldwide tax system on individual income are liable for tax on their medals. And there are only a handful of them in the world, says Daniel Mitchell, an expert on tax reform at the Cato Institute, a libertarian think tank  citing the Philippines and Eritrea as other examples. But with tax codes so notoriously complicated, unravelling which countries would apply this in the context of Olympic prize money is a tricky task, he says. Mitchell is a critic of the worldwide system, saying it effectively amounts to double taxation and leaves the US both at a competitive disadvantage, and as a bullyboy, on the world stage. We are the 800lb (360kg) gorilla in the world economy, and we can bully other nations into helping enforce our bad tax law.

To close out this discussion, statists prefer worldwide taxation because it undermines tax competition. This is because, under worldwide taxation, individuals and companies have no ability to escape high taxes by shifting activity to jurisdictions with better tax policy.

Indeed, this is why politicians from high-tax nations are so fixated on trying to shut down so-called tax havens. Its difficult to enforce bad tax policy, after all, if some nations have strong human rights policies on privacy.

For all intents and purposes, a worldwide tax regime means the government gets a permanent and global claim on your income. And without having to worry about tax competition, that claim will get more onerous over time.

Couldnt athletes then deduct their training expenses, special diets as a business expense?

A few of them can (Michael Phelps), but quite a number of them are at colleges and universities, and train at those facilities...many tax-payer supported. Fortunately undergraduate scholarships are not taxed.

Those that do not train at a college/univ. usually make so little money that taxes are not an issue. Some of the athletes get to use a facility for no charge...and in return the facility gets to use “Olympic medalist trains here”

Personally, I think Sen Rubio made such a comment about “Olympians pay no taxes” to CYA for his attack on Michelle Bachmann, his support of Muslim Brotherhood, and his support for Illegal Aliens

6
posted on 08/04/2012 7:34:36 AM PDT
by SeminoleCounty
(Just because someone has an "R" next to their name, does not make them a Conservative)

These newly rich olympians should be taxed at 100% of their “earnings” from the games. Being olympic games, they were gambling that their government sponsored training would enable them to overcome the abilities of the other and less fortunate nation athletes. These American ‘athletes’, obviously used government provided resources to train and those did not do anything themselves in order to ‘win’ their victories. Their ‘victories’ belong to the government, because we all know “you didn’t make it yourself, but made it because others made it possible.’ Barrack O’bamama.

Probably quite the opposite. If I’m not mistaken, many US Olympic athletes are trained, housed and fed by the US taxpayer. I’m surprised they aren’t required to assign a value to their training and add it as taxable income.

“Couldnt athletes then deduct their training expenses, special diets as a business expense?”

Absolutely along with their travel expenses.

Any athlete facing taxes on such winnings who pays a single penny should immediately fire their accountant or get one.

While the tax code is so complex that even those who head the IRS don’t understand it, money spent which can be directly attributed to earnings or winnings, are deductible and I am sure most have paid enough to get to the Olympics to zero out any tax burden.

The only downside would be if they ran for political office, that insidious little senator from NV would attack them because someone told him, in a men’s room that so and so did not pay taxes.

Too bad the rest of us in the 49 or 56 other states cannot sue NV for electing that fetid little puke to the senate.

geez this is another example of a stupid headline getting in the way of facts.

To be on the olympic team you are allowed to train at their facilities at their expense, if you win a gold medal you get $35,000 in "prize money" plus one heck of a lot of endorsement money, speaking tours and the use of their facilites for the next one.

For a huge bunch of people this is a profession - the field atheltes, participate in the "Diamond" circuit in front of 50,000+ people every month. If you earned 100,000 a year as a runner, would $9,000 look like too much tax money?

13
posted on 08/04/2012 8:22:51 AM PDT
by q_an_a
(the more laws the less justice)

Obviously, these athletes did not do that. Someone else made that happen. Therefore, Obama should have to pay their tax. After all, he is the responsible party.

In reality, a consumption tax would make this a moot issue. When they bought something, they’d be taxed at the point of sale.

However, the best I hear coming out of the GOP is “flat tax”. Even with that, individuals and businesses should be on entirely equal footing. BOTH should be able to deduct any expenses necessary to create that income. In order to create income, one needs food, clothing, shelter, transportation, education, medical/dental care, recreation/renewal, retirement expenses, and spouse/progeny care.

After the individual deducts all of those, any remainder can be called “profit”.

The profit can then be taxed.

14
posted on 08/04/2012 8:33:20 AM PDT
by xzins
(Retired Army Chaplain and Proud of It! Those who truly support our troops pray for their victory!)

If Im not mistaken, many US Olympic athletes are trained, housed and fed by the US taxpayer.

Coaches, equipment, and travel time were all footed by the families to get those kids to the Olympic level. The expenses are huge and many wouldn't make it without some form of sponsorship, usually a matter of private charity.

Maybe not, but the roads leading up to the training facility were built at taxpayer expense, the food they eat was inspected by the USFDA, the power for the lights was generated by an EPA/DOE approved power plant, and I bet the facility has had an OSHA inspection or two.

These athletes should forfeit 100% of their earnings just for the privilege using all these government services.

Anyone care to guess how many athletes will sign up for the next Olympics?

18
posted on 08/04/2012 2:30:11 PM PDT
by Wingy
(Don't blame me. I voted for the chick. I hope to do so again.)

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